CFR Says PEU Junk Bonds Need Rescue

The Council on Foreign Relations  recommended:

For many cash-strapped companies, however, the Fed’s interventions will be of little or no help. The central bank’s corporate-debt buying will focus on companies with high credit ratings. But it is riskier-company borrowing that has skyrocketed of late. As the right-hand chart above shows, large shares of nonfinancial commercial paper issued since 2017 have come from lower-rated companies—much like in the run-up to 2008. This mirrors the pattern in corporate-bond markets, where junk-bond issuance has soared. All this suggests that Fed buying will not stem the rising tide in corporate defaults.

Distressed companies are not completely out of lifelines. On March 26, the Senate approved $867 billion to support industries, small businesses, states and cities. Still, unless the Fed expands its lending to cover low-rated borrowers, relief from the pandemic’s economic fallout for thousands of companies, and millions of workers, appears a long way off.

Note that Carlyle Group co-founder David Rubenstein is Chairman of CFR's Board of Directors.  Carlyle and its PEU brethren acquire companies using riskier debt, i.e. junk bonds.  Fed Chief Jerome Jay Powell is former Carlyle Group Managing Director as is Fed Vice Chair Randall Quarles.

CFR's Vice Chairs are Blair Effron of Centerview Partners and Jami Miscik, head of Sovereign Risk for Lehman Brothers when it imploded in 2008.  Miscik sits on the boards of GM, Morgan Stanley and EMC.

The Fed backed Carlyle affiliate Boston Private with TARP funds in 2008.  FDIC Chief Sheila Bair gifted Carlyle and Wilbur Ross, current Commerce Secretary, with BankUnited in the aftermath of the September 2008 meltdown.  Ross and Rubenstein made huge profits from flipping a publicly subsidized BankUnited.

Financing long term assets with short term money becomes problematic when the big money boys no longer trust one another to make good on their debts.  It happened in Fall 2008 and it's returned in force.  

Billionaire handouts loom.  File this post under:  The Way Washington D.C. works.  It's why a private equity firm named after a New York hotel is located in our nation's capital.  Power, influence, Uncle Sam's wallet = massive PEU profits.  Politicians Red and Blue love PEU  Nobody does it better than Carlyle.

Update 3-30-20:  WolfStreet reported on the many ways the Fed and Uncle Sam will firehose trillions to the PEU boys so they can own even more U.S. assets.